A plasma enhanced chemical vapor deposition (PECVD) method is disclosed for forming a SiON encapsulation layer on a magnetic tunnel junction (MTJ) sidewall that minimizes attack on the MTJ sidewall during the PECVD or subsequent processes. The PECVD method provides a higher magnetoresistive ratio for the MTJ than conventional methods after a 400° C. anneal. In one embodiment, the SiON encapsulation layer is deposited using a N2O:silane flow rate ratio of at least 1:1 but less than 15:1. A N2O plasma treatment may be performed immediately following the PECVD to ensure there is no residual silane in the SiON encapsulation layer. In another embodiment, a first (lower) SiON sub-layer has a greater Si content than a second (upper) SiON sub-layer. A second encapsulation layer is formed on the SiON encapsulation layer so that the encapsulation layers completely fill the gaps between adjacent MTJs.